Foreign Central Banks Liquidate Record $405 Billion In US Treasuries As China Sells Most US Paper Since 2011

from Zero Hedge:

The wholesale liquidation of US Treasuries continued in November, when according to the just released TIC data, foreign central banks sold another $936 million in US paper in November 2016, which due to an offset of $892 million in buying one year ago, means that for the 12 month period ended November, foreign central banks have now sold a new all time high of $405 million in the past 12 months, up from a record $403 million in LTM sales as of one month ago.

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Where did the selling come from?

While Japan sold about $23 billion in November, its fourth month of consecutive selling, it was China which drove the selloff, dumping a whopping $66.4 billion in US Treasuries in its 6th consecutive monthly sale of US paper, and the biggest monthly selloff since December 2011. The monthly sale also brings China’s total Treasury holdings to the lowest level since early 2010.

When combining China’s with the Belgian holdings, an offshore center used by China to mask its purchases (and over the past two years sales) the correlation between combined Treasury holdings and China’s total reserves suggests that this is where the action is at. And considering the reduction in reserves has continued into December, it is safe to assume that China continued to sell US paper to match the reduction of its foreign reserves which as a reminder declined, officially, by another $41 billion last month.

Curiously, reversing its recent trend, Saudi Arabia bought just over $3 billion in Treasury, and has added $10.7 billion in US paper in the past 2 months, the most since July 2006.

But most troubling was neither Japan’s, nor China’s selling, but all foreign holders of US Treasurys combined, which sold $70.8 billion, the most in one month ever, bringing their total holdings to 3.771 trillion, far below the $4.117 trillion held one year ago. On an annual basis, the drop was -8.4%, the biggest decline on record (don’t blame Russia: “Putin” actually bought $12 billion in US paper in November).

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As we pointed out one month ago, what has become increasingly obvious is that both foreign central banks, sovereign wealth funds, reserve managers, and virtually every other official institution in possession of US paper, is liquidating their holdings at a troubling pace, something which in light of the recent surge in yields, appears to have been a prudent move.

In some cases, like China, this is to offset devaluation pressure; in others such as various petroleum exporting nations – but curiously not Saudi Arabia in the past 2 months –  it is to provide the funds needed to offset the drop in the petrodollar, and to backstop the country’s soaring budget deficit. In all cases, it may suggest concerns about a spike in future debt issuance by the US, especially now under the pro-fiscal stimulus Trump administration.

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